What Explains Timely Repayments to the IMF? The Roles of Policy Reforms and Borrower Fundamentals

IMF borrowers have demonstrated a very strong track record of timely repayments to the IMF since the 1990s—indeed, no new episodes of protracted overdue financial obligations (OFOs) have occurred since 2001. This represents a marked improvement from the experience of the 1980s and early 1990s. Through quantitative modeling we find that countries’ international reserves coverage of debt service due to the IMF and other creditors, external debt levels, macroeconomic conditions, and broad institutional strength played key roles in distinguishing between past cases with timely repayments and those with protracted arrears. However, we also find that policy reforms and changes in other qualitative factors since the 1990s weakened the relationship between quantitative indicators of repayment capacity and the likelihood of protracted arrears episodes. While stronger macroeconomic and institutional fundamentals of borrowers have contributed to greater timeliness of repayments, a large portion of the improvement remains unexplained by country-specific factors. The timing of this improvement is consistent with implementation of a cooperative strategy on OFOs and other policies that have incentivized cooperation and mitigated “residual” risks on IMF lending relative to the underlying fundamentals of borrowers.